Who rules in hospitality?

That’s because in the last year, Manhattan’s hospitality market has posted huge gains as tourists continued to flood the city and occupancy levels soared.

Yes, there’s a sense that the market has been here before: 2010 enjoyed similar growth on the hotel investment front before the calendar turned and the momentum petered out, largely because prices began to climb. Yet Manhattan rooms now average $275 a night and are projected to eclipse $280 a night by year’s end, which would be the highest they’ve been since 2008, when they averaged $310 a night, according to a recent study from the CBRE Group.

Indeed, by many measures, 2012 is shaping up to be the best year for the local hotel business since the Great Recession.

This month, The Real Deal surveyed the Manhattan hotel landscape to determine who owns the most hotel rooms south of 96th Street — and is therefore benefiting from the current hotel boom.

The Maryland-based Host Hotels & Resorts came out on top, with the most hotel rooms on its balance sheet — in order, the Blackstone Group, Denihan Hospitality Group, Hersha Hospitality Trust, and Hyatt Hotels Corp. rounded out the top five. (See chart for the top 15.)

Host owns and operates 5,967 rooms at six properties south of 96th Street, including its 1,957-room Times Square hotel, the New York Marriott Marquis. Host is revamping that hotel; this summer the company struck a $140 million deal with Vornado to convert the Marriott’s below-grade parking garage into shops, according to Host’s third-quarter report.

And that’s not the only property Host is investing in.

The company also spent $80 million to renovate the former New York Helmsley Hotel at 212 East 42nd Street, which it bought in 2011. That top-to-bottom makeover included all 774 rooms and also added a new bar and restaurant to the property, which was rebranded as the Westin New York Grand Central.

Taking advantage of an improved lending market for hotels, Host (a publicly traded real estate investment trust, or REIT) also issued $1.5 billion in debt to help pay down existing loans, the company said in a statement.

“We had a great year on the refinancing side,” said W. Edward Walter, Host’s chief executive, in an earnings call last month. He added, “We’re feeling pretty good about how New York should play out next year for us.”

Driving the improved industry fundamentals is, quite simply, the influx of more tourists. According to city tourism figures, 51.5 million people will have visited New York in 2012, versus 50.9 million in 2011 and 48.7 million in 2010.

Enhanced tourism dollars have largely offset the continued slack in demand from corporate travelers, said Edward Eschmann, director of the hospitality group at CBRE in New York. He noted, though, that “the tourism side is a little more price-sensitive than the corporate side” and isn’t willing to shell out as much money to spend the night.

Still, unlike with previous false starts, such as in 2010, he said, “I don’t think it’s déjà vu all over again. It’s been a very good year.”

Tourist trap

Targeting tourists, it seems, is BD Hotels, whose “pod”-style properties — which were a hit overseas before debuting in New York a few years ago — have tiny, inexpensive rooms.

Founded by Richard Born and Ira Drukier, BD Hotels ranked No. 11 on TRD’s list with 1,336 rooms across seven properties.

Among the company’s pod hotels are the 367-room Pod 39, which opened last summer at 145 East 39th Street.

A predecessor, Pod 51, with 360 rooms, opened in 2007.

Analysts say in addition to tourists, those hotels appeal to a rarely tapped market of business travelers “who need a place to sleep because their flight got canceled, so a room for one night only,” said Bjorn Hanson, dean of the Tisch Center for Hospitality, Tourism and Sports Management at New York University.

In addition to those pods, BD also owns the famed Maritime Hotel, Jane Hotel in the West Village and the Mercer Hotel in Soho, among others.

Hanson said the relatively inexpensive pod hotels — room rates there start at $195 a night for a weekend night — can put downward pressure on room prices, to the chagrin of owners of luxury properties. He noted that promotional rates, plus the burgeoning crop of mid-market “select service” chain hotels, also push rates down.

New York Marriott Marquis

Further cutting into profit margins in New York, analysts added, are powerful labor unions: The contracts they secure for their members often require hotel owners to pay housekeepers whether or not they actually have rooms to clean, for example. As a result, owners often rent rooms at any cost, just to fill them and have some income, they explain.

“Some hotels would rather collect $100 than zero just to cover costs,” said Ray Martz, chief financial officer of Pebblebrook, the Maryland-based REIT that jointly owns several hotels with majority partner Denihan Hospitality Group..

Still, for hotel owners, the all-important revenue-per-room figure, or RevPAR — the rate that determines how much money they make — is actually climbing. It averaged $216 per room in the first half of 2012 versus $202 in the same period in 2011 — a jump of 7 percent.

That rate is also inching closer to its recent apex, about $250, in 2008, the data showed.

In addition, Manhattan’s occupancy rate is hovering around 85 percent, which is close to where it was four years ago, in flusher times, according to CBRE’s data.

The big squeeze

Rather than aggressively expand, many of the biggest hotel owners in Manhattan have used the rosy conditions of the last few months to shore up finances, renovate buildings and reconfigure layouts to wring a handful of new rooms out of existing properties.

Like other large owners in the city Denihan and Pebblebrook have recently been on a renovating spree. They spent $24 million re-configuring and renovating rooms at Affinia Manhattan, at 371 Seventh Avenue near Penn Station. As part of that project, the partners increased the hotel’s room count by 92 to 618 rooms, a Denihan spokesperson said.

Using a similar strategy, the companies plan to add 41 more rooms at Affinia 50 next year at 155 East 50th Street, which currently has 210 rooms.

Similarly, the Hudson Hotel, which is located inside a former YWCA at Columbus Circle, recently added 30 new rooms from within its own walls as some longtime residential tenants left, which boosted its total room count to 866 from 836, according to industry sources. That hotel is owned by Morgans Hotel Group — No. 13 on TRD’s ranking.

Midtown’s 1924 Roosevelt Hotel also just wrapped up a renovation of its 1,015 rooms, including new carpets, furniture and fixtures, as well as an upgrade of the Madison Club Lounge with a new granite bar, a spokeswoman confirmed. The historic property, which is located at 45 East 45th Street near Grand Central, is owned by the government of Pakistan, which came in at No. 14 on the TRD list with that single property.

Mark Hoplamazian

It should not come as a huge surprise that many hotel owners are renovating rather than building anew (or converting office buildings). With land costs on the rise and sellers suddenly savvy about what they can charge based on the uptick in demand for hotel rooms, it can be a costly proposition to buy a property, according to analysts.

In the second quarter of 2012, a hotel cost an average of $478,790 per room to purchase, according to figures prepared by Real Capital Analytics. That figure marks the culmination of an increase in cost, year over year, for the last few years.

In the second quarter of 2010, for example, the average price per room was $302,454. As costs of buying a hotel have climbed, activity has slowed. In the second quarter of 2012, there were $379 million in hotel sales in Manhattan, versus $1.67 billion in the third quarter of 2011, which was the recent high peak, according to the RCA data.

“Values were depressed a few years ago. People were buying assets in all locations,” NYU’s Hanson said. “But as occupancy returns to 85 percent, buyers have become more selective” because prices have gone up.

The aggressors

While most major players have been in retrenchment mode, some owners are aggressively blazing ahead.

Foremost among them might be Hyatt, which is opening new high-profile properties across the country, including in Manhattan. (Hyatt, which is headed by Mark Hoplamazian, ranked No. 5 on TRD’s top 15 list.) Two of its Andaz lines, on Fifth Avenue and Wall Street, also recently had ribbon cuttings, but what is perhaps more significant is what lies ahead, like the Hyatt Times Square, with 487 rooms, that is now going up at 135 West 45th Street and is set to open mid-2013. Also, the 210-room Park Hyatt, its upscale brand, will debut at One57, the record-setting new condo from Extell Development Company. However, because those projects won’t open for months — One57 is currently under construction at 157 West 57th Street — their rooms weren’t included in TRD’s totals.

Similarly, the McSam Hotel Group, the prolific development company headed by Sam Chang, also didn’t make the list. The company usually sells its properties quickly after building them, meaning that its actual count of owned rooms is low.

In addition to the Hyatt properties, there are other planned hotels that will add hundreds of new rooms to Manhattan.

Last month, an investment group including Steven Witkoff, Howard Lorber’s Vector Group and Michael Ashner’s real estate investment trust, Winthrop Realty Trust, purchased 701 Seventh Avenue in Times Square, with plans to build several levels of retail with a 475-room hotel on top.

Steven Roth

Witkoff said last month at an industry gathering in Midtown that he anticipated it would cost about $200 million to develop the hotel, or less than $500,000 per room. Hotel developer Barry Sternlicht’s Starwood Capital Group and Starwood Property Trust provided up to $475 million in financing for the purchase and development. However, Witkoff also said that he could go forward with the retail portion of the project even without the hotel rooms and then simply add the hotel later.

But despite those examples, what’s helped lift the market this year is that relatively few new rooms have been added to the overall inventory, allowing 2011’s ample supply to be absorbed by burgeoning demand. Indeed, 2011 saw the opening of several thousand rooms, including massive properties like the 670-room Yotel at 570 10th Avenue.

And though hotels have debuted in 2012, they are mostly smaller boutiques, which means they have a few hundred rooms at most. That hasn’t been enough to change the supply dynamic.

In fact, just 1,151 rooms were added to the Manhattan supply in the first half of 2012, compared with more than 2,000 rooms in the same period of 2011, the CBRE figures show.

So what’s ahead?

The market in 2013 is not expected to see huge deal-making totals, said John Fox, a senior vice president with PKF Consulting, which serves the hotel industry.

In 2011, “there was a great rate of acceleration, which gave people an impetus to jump in,” said Fox, adding that as prices have climbed in 2012, deals have slowed.

As for next year, he said, “I see it as a continuation of what we had this year: a moderate number of deals and continued strong fundamentals.”

CORRECTION: In the November issue story “Who rules in hospitality?” The Real Deal incorrectly stated that Pebblebrook Hotel Trust was the fifth largest hotel owner in Manhattan, south of 96th Street. The credit for Pebblebrook’s hotel rooms should have gone to Denihan Hospitality Group, the company’s partner, according to TRD‘s methodology. The two are also partners on several other hotels that have been added to the story. With the exception of the Surrey, Pebblebrook technically has a 49 percent stake in all of Denihan’s listed hotels, though it does share control and decision making with Denihan equally. The story and chart have been updated to reflect that.